Microsoft’s $199 Special Could Go a Long Way

Microsoft (NASDAQ: MSFT) is doing its part to bring Windows 8.1 tablets to the masses this holiday with the first of its "12 days of deals" promotions. The company is offering a Dell Venue 8 Pro tablet (this is an 8" full Windows 8.1 device) for just $99 to the first 20 buyers at each Microsoft retail store and the first 100 buyers online on Dec. 9, and then for $199 for the rest of the day for those unlucky buyers that aren't first in line. This is anywhere from $100 to $200 off for a full Windows 8.1 device that sports a quad-core Intel (NASDAQ: INTC) Atom processor, 2GB of RAM, and 32GB of storage. Pretty nifty, eh?

This is excellent for Windows tabletsThere's really nothing wrong with Windows 8.1 as a tablet OS. These tablets come packed with some seriously impressive processing power on top of what is already an incredibly efficient operating system. While Windows tablets don't have much in the way of market segment share compared to Apple (NASDAQ: AAPL) iPads or the plethora of Google (NASDAQ: GOOGL) Android-based devices, it's tough to imagine that Microsoft won't eventually be a major player in tablets.

These types of promotions bring awareness to just what sorts of nifty Windows 8.1-based devices are available on the market. Further, with Microsoft pushing a nice device from its partner, Dell, it's starting to look as though the software giant is willing to be a good steward of its ecosystem and to actually support its partners rather than try to hog the spotlight with its own Surface tablet products. This bodes well for Microsoft as its own dominance of the PC industry was done through a horizontal model rather than a tight vertically integrated model like Apple's.

It's not about high endIt always seemed like Microsoft was making a mistake by trying to develop its own high end tablet products. Apple has a tendency to sew up the high end of the market, so the job of Microsoft and its numerous OEM partners will be to offer compelling products at sub-iPad prices. That means well under $499 for 10" tablets and under $299 for 7-8" devices. It is likely that when the Venue 8 Pro goes on sale for $199 it will be very quickly snapped up.

Further driving this need for low pricing is the ubiquity of low-cost, fully featured Android tablets. While the added overhead of Windows and Office isn't trivial, it is likely that Microsoft will keep its licensing fees here fairly low – at least for the sub-10" devices that don't directly serve to cannibalize traditional notebook PC sales. The "small" tablets are largely incremental units, and given that Microsoft's production costs for a Windows license are zero (software has no meaningful COGS) it's tough to see why Microsoft wouldn't be in favor of a low license fee to drive volume growth and to get users into the Windows ecosystem.

Foolish bottom lineMicrosoft is here to stay in the tablet market. Thanks to solid silicon, a nicely designed operating system, and a suite of hardware partners all desperate to replace falling PC sales with tablet sales, it probably won't be too long before Windows 8.1 and its successors hold a fairly substantial market share in the tablet market. This benefits both Microsoft and Intel, although given that the latter is heavily subsidizing its tablet chip sales, Microsoft will probably see a positive financial impact before Intel does.

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